House Subcommittee Examines FHA
The House Financial Services Subcommittee on Housing and Insurance held a hearing yesterday to examine the current and future status of the Federal Housing Administration (FHA) and its affordable housing programs. The hearing included testimony from Edward Golding, who currently oversees FHA as the Principal Deputy Assistant Secretary for the Office of Housing.
Throughout much of the hearing, Golding fielded questions about the financial health of FHA’s Mutual Mortgage Insurance Fund (MMIF), which finances FHA’s homeownership and reverse mortgage lending programs. In his opening statement, Golding emphasized that FHA’s 2015 Annual Report to Congress found that the MMIF has a capital ratio of 2.07 percent, the first time it has exceed its statutorily mandated capital ratio of 2 percent since 2008. FHA will continue to grow, Golding predicted, due to increased loan production, better loan performance, and quality control initiatives it has recently implemented.
Subcommittee Chairman Blaine Luetkemeyer (R-MO) disputed Golding’s positive outlook. In his opening statement, Luetkemeyer noted that FHA has had trouble in its recent history keeping the MMIF healthy, having met its mandatory minimum capital ratio only three times since 2000. The reason FHA met the 2 percent ration in 2015, Luetkemeyer argued, was because its reverse mortgage portfolio performed more strongly than expected, which is not something FHA can expect to happen again.
Luetkemeyer also charged FHA with allowing questionable underwriting practices and said that FHA’s decision last year to lower the annual mortgage insurance premium it charges borrowers was FHA’s attempt to “grow itself” to better financial health. The premium reduction, he asserted, is putting taxpayers at additional risk while also taking business away from the private sector.
Other Republicans on the Subcommittee expressed similar concerns. Representative Dennis Ross (R-FL) expressed concerns that FHA was insuring loans for borrowers with low FICO scores that would be uninsurable in the private market. This, he contended, places taxpayer dollars at unnecessary risk. Golding replied that it is FHA’s traditional role to help responsible borrowers who might not be able to obtain affordable financing in the private market.
Congressman Roger Williams (R-TX) cited studies he said suggested that loan performance drops substantially for borrowers with FICO scores below 660. Noting that FHA’s minimum credit score is 500, Williams asked Golding how FHA could justify insuring such loans. Golding answered that FHA utilized a holistic approach to underwriting loans that includes a number of different factors. Loans to borrowers with low FICO scores, Golding explained, will have to have other compensating factors, such as a low loan-to-value ratio, to qualify for FHA insurance.
Democrats on the Subcommittee urged Golding to do more to help first-time home buyers. Subcommittee Ranking Member Emanuel Cleaver (R-MO) said he was concerned about a recent Urban Institute analysis that found that tight credit standards prevented 5.2 million consumers from purchasing a home between 2009 and 2014. What, he asked Golding, can FHA do to address the lack of credit availability for working Americans? Golding answered that he was working to make it easier for lenders to do business with FHA by putting out guidance that clarifies FHA’s policies and guidelines, including the new HFA Single Family Handbook.
Representative Al Green (D-TX) told Golding that there are many individuals who responsibly pay their rent and utilities, but who are unable to purchase a home because they have been unable to build up credit. Can FHA modify its underwriting guidance so alternative credit metrics, including rent and utility payments, can be considered? Golding replied that lenders can currently consider such factors when manually underwriting a loan and that FHA is looking for a way to incorporate such data into its automated underwriting system.
Subcommittee members also questioned Golding about FHA’s multifamily programs. Representative Keith Ellison (R-MN) asked Golding what FHA planned to do to address the severe shortage of affordable rental housing. Golding said FHA has a long history of supporting lending for affordable multifamily housing. He noted that FHA recently cut its premiums for loans that support the production and rehabilitation of affordable rental housing. Ellison also urged Golding to ensure that FHA does more to support lending for single-family manufactured homes.
Maxine Waters (D-CA), the Ranking Member of the Financial Services Committee, asked Golding about FHA’s plan to consolidate its multifamily program offices by shutting down some local offices. Waters said that, despite congressional opposition to the plan, she has heard that FHA was refusing to fill job openings at those offices they wanted to close, and that FHA was intimidating employees who wanted to continue working in the local offices. Golding expressed support for the consolidation plan. He also promised to look into reports of employee intimidation, which he said would be unacceptable.
The Subcommittee released a statement after the hearing.
